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Manufacturing Costs and Balance of Payments

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1 - JES, Inc., a U.S. technology company has recently developed a revolutionary lighting product that will replace incandescent lamps. The product offers exciting new features along with all of the features of conventional lighting products, but at a fraction of the manufacturing costs. As the international business manager of JES, you have been asked to choose the best mode of entry into the European market. You have the following options:

Export your product from the United States.
Enter into an alliance with a large European company.
Manufacture the product in the United States and set up a wholly owned subsidiary in Europe.
License a European firm to manufacture and market the lighting products in Europe.

In preparation for your choice, list the pros and cons of each method of entry. Which choice do you present to Mr. Salina (CEO and inventor of the new technology)? Be sure to support your decision.

2 - Define a trade deficit and a trade surplus. What are the implications of a long-term trade deficit or trade surplus? What techniques are available to correct balance of payment deficit or surplus?

Does free trade equate to fair trade? Does free trade exist anywhere in the world?

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Solution Summary

The response addresses the queries posted in 1393 words.

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The response addresses the queries posted in 1393 words.

//Before making the choice to enter the Other Markets, it is necessary for us to understand the advantages and disadvantages of each method of entry. It helps to understand the appropriateness of the entry mode for a particular product. I am providing a brief overview about the pros and cons of four strategies; you are free to add other modes of entry, for your part.//

Introduction

The new developed revolutionary product of JES, Inc. can be distributed all over the world through various foreign entry modes. The new features incorporated in the strategy will be helpful to generate a significant demand of the products in other countries. The Management of JES, Inc. can use the following entry modes -

- Export the Product - It is the traditional method of entering into a distant market. It may be direct or indirect. It is an important method, as it doesn't require any infrastructure facility in the foreign country. It also avoids the intermediaries, which help to increase the profitability for the organizations. It also helps to enhance the competitive positions in the domestic environment. The organization can sell up to its excessive capacity. But at the same time, it also has some disadvantages such as increase in the promotional cost because of the requirement of new promotional material. The cash flow in the firm also decreases because of the longer time in payment. The company also has to change the packaging to sell its product in foreign country, which increases the cost for the organization (Advantages and Disadvantages of Exporting, 2008).

- Strategic Alliance - In the current international environment, this method of entering in a foreign country is increasing continuously. It is the most cost effective entry mode strategy. It provides the advantage of the large size and the large customer base to the corporation. It also gets the benefit of the expertise in a particular sector or area, in which it makes alliance with another company. The strategic alliance is formed in the same industry or the members of the other industries, which also provides advantage to the organization. On the other hand, the return from the strategic ...

Solution provided by:
Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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